GDP + National Income

Define National income

-what does this include?

-total income earned from the use of a country’s resources, whether at home or abroad

-compensation of employees, corporate profits, rental income, net interest

Define each letter in this equation and what is measures:

Y=national income identity

C(consumption): spending by households on goods + services

I(investment): spending by firms on capital and changes

G(government purchases): government spending on goods and services

NX(Net exports): exports minus imports( X-M)

Define GDP per capita

-what does it measure

-country’s gross domestic product divided by its population

-measures average economic output(income) per person

-estimate standard of living in a country

Define growth rate of GDP

-what does it measure

-measures how fast an economy output is increasing/decreasing over time

-compare new GDP with old GDP

Equation= (Current GDP-Old GDP/OLD GDP) *100

What is the relation between GDP and Standard of Living

-List pros and cons

-Higher GDP per capita means more goods and services produced(typically associated with higher material standard of living)

Pros:

-clear + comparable

-Correlated with many outcomes

-based on market activity

Cons:

-Ignores distribution: it is an average, does not entail inequality

-Misses non-market acitivites: volunteer work, caregiving activites,

-Doesnt capture quality of life: doesn’t mention time, stress, safety, political freedom

-Environemental costs: pollution can increase

Define

-GNP

-Personal Income

-Disposable Personal Income

-PPP GDP

a.GNP(Gross National Product): total market value of all final goods + services using resources owned by a country’s residents

-includes production abroad

-U.S firms abroad

*Does not include abroad firms in U.S

b.Personal Income: total income received by households before personal taxes

-SSN, interest, divident

C.Disposable Personal Income: personal income minus personal taxes

DPI= PI-personal taxes

D. PPP GDP(Purchasing Power Parity): GDP measured using purchasing power parity

-adjust differences in price levels between countries so unit of currency is equal across each country

What is included and GDP and what isn’t:

a. Final vs Intermediate goods

b. Legal vs illegal markets

c. Production location

*Final vs intermediate goods

a. Final goods/services

-included in GDP

-products bought by the final user

b.intermediate goods/services

-goods used to make other goods(steel, flour)

-not included in GDP(avoid double counting)

*Legal vs illegal market

a. Legal market

-legal goods and services included in GDP

b.Illegal market

-drug dealing

-illegal gamblign

-unpaid work(household production)

*Production location( GDP vs GNP)

Included in GDP: all final foods + services produced within a country’s borders ( foreign or domestic companies)

Included in GNP: Goods and serviced produced abroad, pertains to US owned firms + citizens, excludes foreign firms producing within the U.S

Roaring 20s

-behavior of GDP + national income

-Key features

GDP/national income: rapid growth, industrial production, consumer goods, and construction boomed

Key features: rising real incomes, expanding credit, productivity gains from new technologies

Great Depression( 1929-1930s)

-behavior of GDP + national income

-Key features

GDP/national income: massive decline, GDP fell

Key features: collapsing output, bank failies, deflation, very weak recovery

World War 2

-behavior of GDP + national income

-Key features

GDP/national income: huge surge, government war spending drove output to record levels

Key features: full employment,

Post war

-sustain growth in real GDP

-rising lviving standards

-high investment

-baby boom

1970s-early 1980s Stagflation

-behavior of GDP + national income

-Key features

GDP/national income: Real GDP growth was weak/uneven, many recession

Key features: High inflation, high unemployment,

Dot com recession

-behavior of GDP + national income

-Key features

GDP/national income: mild recession, GDP growth slowed sharply, unemployment rose

Key features: collapse of tech stock bubble

Great Recession

-behavior of GDP + national income

-Key features

GDP/national income: large + prolonged drop in GDP + income, biig rise in unemployment

Key features: housing bust, credit crunch

Long expansion( 2009-2020)

-behavior of GDP + national income

-Key features

-GDP/national income: steady but moderate real GDP growth, falling unemployment

Features: recovery from great recession, slow productivity

Covid Recession(2020)

-behavior of GDP + national income

-Key features

GDP/national income: extremely sharp but short lived collapse in Real GDP, fall in consumption

Key features: sudden spike in unemplyment,

Post Covid inflation period(2022+)

-behavior of GDP + national income

-Key features

GDP/national income: Real gDP recoveed, incomes rising but inflation high

Key features: real purchasing power for mnay housing was squeezed by higher prices